The next CEO

Let’s pick up a topic again that was posted here before under a different point of view by diiasg: How to pick the new guy. The question is „Who’s going to be the new boss?“ and that is a very delicate one. Especially since CEO’s make strategic choices and therefore are a critical factor for a companies success or failure. In his post he highlights the discussion about the importance of a long standing policy for developing future leaders. Let me show you why I am tying in with his conclusions…

Policy or not?

A couple of days ago, during my research, I came over the Korn/Ferry Executive Survey which I found pretty interesting. It reveals that only 35% of global companies have a succession plan in place although almost all of them – 98% – regard CEO succession as an important part of their corporate governance.

This made me think and I started searching the news for prove. I didn’t have to look far. AMD was just struck with the sudden resignation of Dirk Meyer and established an interim CEO while starting to look for a successor. Warren Buffet is still pondering about who’s best for Berkshire Hathaway. The CEO position at Telkom seems to be “permanently poisoned” with two CEO’s and one CFO resigning within only 10 months without a permanent successor at hands. Apple is just in the news with being reluctant to establish a public succession plan. Well, concerning last years health conditions of Steve Jobs, they hopefully keeping one secret and are just making a fuzz about it, as usual.

Somehow I can understand that it’s not the easiest task to look for a suitable candidate while outside the sun is still shining. Why? One could point to the shortage of qualified young professionals, a problem that doesn’t only affect Germany and makes it even more important to have the best possible talents secured for one’s own company. Or take a crisis and structural changes that have to be solved first. However, at one point or another there will be a delay-no-more situation and the question is if these ad-hoc decisions will be the best for the company? Let’s see what the alternatives are.

Spoilt for Choices

Recently, I subscribed to a test version of the Harvard Business manager. In the first edition this year I found this great article “Die Qual der Wahl” about which kind of successors performs best as future CEO: internal or external candidates, board members, external insiders or leadership persons with CEO experience. The study is based on 300 CEO successions in S&P 500 companies between 2004 and 2008. The results are astonishing. It turns out that on average board members perform outstandingly successful compared with the other types of successors while External Insiders (hired as COO or president and promoted as CEO within 18 months) seem to be the worst option. Here is why:

Board members know the company, its organisation and finances perfectly and have an idea about the expectations of the board. Apart from that, they feel less pressure when making unpopular decisions. An example I found is James McNerney. He took over Boing in 2005 and received very good feedback for his achievements.

External Insiders start working under the outgoing CEO who is still in charge and first contact person for the board. The “new guy” will therefore keep status quo to be on the safe side, but is often not able to get out of this position at a later point.

Before you start hiring now, pay attention to another tendency first. The study proved that suitability is dependent on the companies condition:

Profitable Companies are best taken over by Insiders since healthy companies often have the time and resources to develop good managers. They are also well-established within the companies culture which makes it hard for externals to fit in.

A good example is Disney which was taken over in 2005 by Robert Iger who was an established executive manager. He turned out to be the perfect candidate. He dedicated his work to story telling and with the acquisitions of animation movie maker Pixar and the cartoon publisher Marvel he helped Disney to outperform its competitors.

Companies in a crisis are advised to take an external candidate. They produce new ideas and perspectives while internals are often stuck in the old culture that led the company into the crisis.

However, this is not a formula. Unfortunately (Or: Thank god!), it isn’t quite that simple. Otherwise companies such as Hay Group would have less work. I can imagine that many big companies ask for professional help when it comes to this question. I am not an expert, only one out of a billion insignificant bloggers who wants to contribute (at least in terms of an opinion) to the actions out there. Therefore the only thing I want to tell people like Warren Buffet or Steve Jobs is:

Guys, I only know that it is probably neither age, sexual orientation, race, gender, religion, and not even the college or university someone has visited that determines a good CEO. You gonna find out.

Comments

Great post and follow up of the Saiid’s article. You brought up an interesting new dimension to the topic.

As you say, you always have the decision between insider or outsider to fill the post. I have just found an interesting article in the book “Strategien der Personalentwicklung” about Volkswagen. They have introduced an elaborate “Group Executive Development” strategy starting from trainee positions, on the entry level, until the top management posts in order to promote high potential within the company.

From what I personally saw in China during my internship, these programs really work. The developed a highly advanced program within the company. However, I also met some externally hired executive.

Excellent that you pick up a topic/interest from a classmate and would add to it! One thing you might do at the end is review your contribution to the discussion and, like tennis, send the ball back into his court and invite a return. You do that by referring again to what he has said, suggesting your contribution, maybe even adding a note/comment on his post inviting him to comment on yours, and in this way set up a volley.

Excellent method you have developed here! You find articles which review different ways of solving common business problems and note how each is considered appropriate for a specific type of company. Do this 3-4 more times until you understand the method intimately, achieve mastery, enjoy the confidence that comes with mastery, and along the way note variations that, layered on top of this basic structure, will add complexity. To develop additional levels of confidence you might find other articles by the same author and analyze his formula or template, see how he has developed his method and applied it to different cases. Then look for other others that approach these problems in similar ways. Maybe prepare a post on this method, including a survey that examines its elements and some variations. This will help you make this method your own, both in your being able to do it over and over and in your seeing how leading writers in your field follow it. If it walks like a duck and talks like a duck, it (you) is/are a HBR-level business writer (you might find better company, but HBR is not too shabby).

Discuss this method with your group members, so that they will understand and likely agree on its validity so that you will enjoy their support and so that they will be prepared to appreciate your mastery and exploration of variations.

Here are the websites of the woman who has multiple blogs, including her formal management consulting blog, others that discuss current issues, a personal blog, and another for creative writing:
Lisa Haneberghttp://www.lisahaneberg.com
Twitter: LisaHaneberghttp://www.managementcraft.com

Thank you for this interesting perspective and nice examples 🙂
I found it very surprising as well that not even the “big companies” have implemented a structured succession management process, at least many of them.
The company I currently work in, a big auditing and consulting firm, has just started to implement a program on the national level. But I wonder if that is just enough? In those huge global companies there are key positions that are not tied to a single country or nationality… but that are crucial to the companies success.
So you point out a very important aspect here, thanks again!

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